Just what does Drama 2.0 do? One of activities I’m most heavily involved with is the trading of financial instruments (primarily option contracts). Trading is a wonderful exercise not only because there’s a lot of money to be made (and lost, of course) but because the most powerful human emotions - fear and greed - are grappled with an on almost daily basis.

There are a lot of life lessons to be learned and many of the "rules" of trading can be applied to the world of technology entrepreneurship, especially in a day and age where startups are built to be "flipped" and entrepreneurial employees jump from one startup to another in search of the "big hit." Here are several trading "rules" that can be useful for technology entrepreneurs.

The Trend is Your Friend

In the startup world, spotting market trends in technology isn’t as easy as looking at a trendline on a price chart but it’s not too difficult either.

Most savvy and experienced entrepreneurs have a good sense of trends. They know which markets are meeting needs and seeing the creation of potentially valuable businesses, they know which markets are seeing increasing inflows of investment capital and they know which markets have a healthy level of M&A interest or activity.

While most entrepreneurs want to get into hot markets before they’re hot because there is the perception of greater profit potential, it’s worth noting that in the financial markets, the average investor only makes money in the middle of a trend. This is often called the "meat of the move." As such, entrepreneurs should consider that they don’t necessarily have to try to predict new trends and can instead place their bets when a trend has been established.

Example: Friendster popularized the modern day version of the "social network." It launched in March 2002 and it didn’t take long for Friendster to take off. Social networking was officially "hot." Yet a number of startups that launched after the social networking "trend" had been established have done far better for themselves.

MySpace, which launched in August 2003, sold to News Corp. for $580m in July 2005. Facebook, which launched in February 2004, has reportedly entertained 10-figure buyout offers. And Bebo, which launched in January 2005, recently sold to AOL for $850mn in the largest social network acquisition to date.

The lesson? You don’t always need to be "first."

The Trend is Your Friend Until the End

Some trends last longer than others but all eventually come to an end, hence the saying "The trend is your friend until the end."  Entrepreneurs should recognize that no matter how much they believe in the trend they’ve invested themselves in, the trend is only working in their favor while it’s intact.

In the world of startups, once a trend ends, if you don’t already have a viable, self-sustaining business and a revenue model that can realistically withstand a bit of a shakeout, any advantages that inured to you when you were going "in the direction of the trend" are eliminated.

Example: online video startups have raised lots of money and much of this money flowed into the market after Google’s $1.65 billion acquisition of YouTube in October 2006. And yet while online video has a bright future, the trend that supported online video startups looks to be waning. The fire sale of heavily-funded startups like Revver and PodTech is likely just the first part of a shakeout I predicted earlier this year and online video entrepreneurs relying solely on the "online video is hot" trend are not likely to fare well.

Don’t Try to Call Tops and Bottoms

One of the biggest mistakes a trader can make is to call market "tops" and "bottoms." In fact, this mistake probably accounts for the majority of the losses amateur traders make. Professional traders understand that they have no control over the markets. They are successful because they keep their emotions in check, think objectively, play probabilities and understand the importance of money management.

Amateur traders think success is dependent upon predicting what the market is going to do. They will rush head-first into trades because they think they can call market highs and lows. When it comes to startups, entrepreneurs should recognize that they don’t know when the hot new markets they’re in will lose their luster. Thus, getting greedy and trying to predict when it will "peak" so as to "get out" at the very top is foolish. See "Pigs Get Slaughtered" below.

Conversely, trying to predict when a market will rebound is equally foolish and the saying "never try to catch a falling knife" serves as a reminder to those who think they can call bottoms.

Example: with it becoming clear that many Web 2.0 startups aren’t going to make it, Om Malik suggested that it might be time to start a vulture fund that buys up distressed Web 2.0 "assets" at a bargain basement price. But just what is a bargain basement price? A startup that once raised $10 million but is being sold off for $1 million may still be overvalued and the worst could still be yet to come.

As I noted, "successful vultures don’t reap financial windfalls by buying everything that declines significantly in value." The bottom line is that most of the time, trying to predict when an asset has hit its lowest point in value usually leaves one holding an asset that continues to fall in value.

Pigs Get Slaughtered

Greed is the second most powerful emotion in financial markets (behind fear). Traders who are unable to control their greed and leave everything on the table inevitably become "pigs" and "pigs get slaughtered." While some "pigs" don’t think at all, many "pigs" believe that they will be able to predict the "top" of the market, as discussed above, giving them an ability to maximize profits. Few are successful and those that are typically mistake luck for skill.

The same goes for entrepreneurs. Knowing that trends don’t last forever and accepting that they have no knowledge of or control over when they’ll end, smart entrepreneurs recognize that there’s a time to take money off the table. In today’s Internet startup world, taking money off the table typically means selling your company. How do entrepreneurs know that they’re selling too early? They don’t.

Example: Facebook. The company led by wunderkind Mark Zuckerberg reportedly turned down 10-figure offers and instead choose to raise money at a ridiculous valuation, maintaining that he felt the company is better off remaining public and eventually going public sometime after 2008.

Yet Facebook’s valuation raised eyebrows - and skepticism. The company’s revolutionary advertising play (Beacon) flopped and the company’s shortcomings (especially around monetization) are now well-known. The public markets don’t look like they’ll be conducive to an IPO anytime soon given the company’s financials, leaving shareholders illiquid. Hence it’s no surprise that some Facebook shareholders are attempting not to be pigs - they’re looking to sell their shares privately.

Respect Support and Resistance

In the financial markets, support and resistance are key points at which supply and demand are in alignment. Support is the point at which demand keeps price from falling further and resistance is the point at which supply keeps price from rising further. Support and resistance are often found in the form of previous highs and lows, moving averages, floor trader pivots, etc.

While "buying into support" and "selling into resistance" are not hard and fast rules (support and resistance do break all the time), not recognizing support and resistance levels is a huge mistake. In the startup world, a similar dynamic of supply and demand exists.

Every "hot" new market gets hot because there is some demand. This leads, of course, to the creation of startups to meet it. Yet at some point, the supply exceeds the demand and the market is left with a field of companies that have essentially failed.

Entrepreneurs must be realistic and should observe the supply and demand dynamics in their markets.

Example: social networks. It’s unlikely that MySpace and Facebook are going away anytime soon because there is demand for them (support), yet the rise of the social networking market led to literally hundreds of social networking startups (more than a few of them funded). Clearly, the supply of social networks now exceeds the demand (resistance). Thus, launching a social networking startup today would be akin to "buying into resistance" and unless an entrepreneur has a valid rationale for that, it’s probably not a wise move.

Patience is a Virtue

In the fast-paced world of financial markets, it’s really easy to lose patience. When you miss a great trade, the desire to "chase profits" creeps in. When you’re looking too hard for trading signals that just aren’t there, "overtrading" can occur. The same problems are present for entrepreneurs who often find themselves scrambling to enter hot new markets when they feel they’re missing the boat or who feel the need to explore every opportunity that they think exists even when these opportunities are objectively dismissed.

Patience is a virtue for both traders and entrepreneurs.

For traders, patience often means sitting on the sidelines when there is no opportunity that gives you a discernable edge. It also sometimes means sticking with a trade (i.e. letting your stops take you out of a long trade despite your emotional desire to get out sooner).

For entrepreneurs, patience also often means waiting for the right opportunity. And while it’s far too easy to get emotionally attached to a company and not "cut your losses" when you should, patience can mean sticking with good opportunities even when they don’t get realized overnight.

Example: one need go no further than the conference and party circuit in Silicon Valley to meet entrepreneurs chasing opportunity and jumping from ship to ship in search of it. Most will not be rewarded by chasing success in this fashion.

And one need look no further than a company like Shutterfly to find entrepreneurs who were patient and "stuck with it." Shutterfly struggled to make it through Bubble 1.0 and its future still has a lot of uncertainty but it was able to go public in 2006.

Conclusions

Obviously, there are a lot of similarities between "traders" and "entrepreneurs." But there are a lot of differences too. While a considerable amount of wisdom gleamed from the financial markets can be applied to the entrepreneurial experience, I personally don’t recommend that entrepreneurs treat their business decisions like pure trading decisions.

Unlike with trading, some emotion is good for entrepreneurs - starting a new business (or going to work for a startup) shouldn’t be a detached process that is driven solely by profit. After all, the best entrepreneurs truly believe that their companies are doing something important and that they have what it takes - the best traders believe in no such thing.

Yet exercising the objectivity and discipline traders strive for and which the rules above demand can help entrepreneurs make better, more logical decisions. And that’s a good thing, especially at a time when so many entrepreneurs (and wannabe entrepreneurs) have discarded logic for hype.

Addendum

My predictions on Schlumberger and Google proved to be quite profitable.

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When Microsoft launched their Live Search Cashback option back in May, all of the bloggers and reporters talked about how it was going to really boost Microsoft’s search market share. I took a different view, looking at it from the dealhunters point-of-view. In late June we talked to the deal hunters (me included) and they said that the Live Search Cashback was great, paying up to 35% rewards for shopping on eBay.

Today Techcrunch editor Erick Schonfeld has an article about how Microsoft hasn’t gained any market share with the new Live Search Cashback option and in fact the overall share dropped by a small percentage in July. Erick points to research by comScore and concludes with, "While two months worth of data is far from conclusive, it does suggest that in search you can’t buy market share. You have to earn it."

The issue that so many writers are missing is that this new cashback option will never get users who are looking for information to switch. Why would I switch from Google to Microsoft Live Search Cashback when I am looking for cat photos? Microsoft is sitting on a huge homerun if they could get their ducks in a row about how to market this tool properly.

For example, why would ANYONE not start a purchase on the Microsoft site? If you are buying items online and not getting cashback from Microsoft, Fatwallet or the other cashback services, you are simply throwing money away. Look at these cashback amounts:

• Zappos - 22.5%
• Footlocker - 45%
• Newegg - 3%

In the deal hunter segment, the Microsoft Live Search Cashback is doing well from my perspective. Fatwallet continues to be a discussion place for the cashback search and as of yesterday there are now merchants paying up to 62.5% back.

Will Live Search Cashback take away market share from Google or Yahoo in the informational searches? No. Could it dominate the product search/price comparison category? Yes. Microsoft needs to learn how to market the search as a product and purchase search - and then we will see those charts change direction.

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NY-based child journal service Kidmondo has announced a partnership with another NY-based company, SharedBook. When I reviewed Kidmondo back in May, I suggested that this partnership should be made because both companies could benefit in overall distribution. And it’s great to see NY helping NY.

The printed book is a "Kidbook" and really is a great way to take the online journal offline to create the more traditional children’s journal and keepsake. It’s also a good idea to have as a backup and to share with family who aren’t online.

Kidmondo has also announced several upgrades to their service. The free plan now supports 100mb photo storage which ties into the printed book offering. They have reduced pricing on the premium plans and now offer bulk-uploads for photos, Vimeo video integration and improved milestones support.

Kidmondo co-founder Daniel Hallac tells me pricing for the KidBook begins at $28.00 for a perfectly bound soft cover book and $38.00 for a laminated hard cover. These prices include a full-color 20-page book with free U.S. shipping and a readable flipbook online version of the book that can be distributed via email.  

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Streetread is a financial news and stock quote aggregator that launched earlier this summer. Josh Lowensohn at Webware has a good review of the initial launch. Initially the Streetread service was only available on the Web. Last week they announced the launch of Streetread Mobile which provides a similar set of information on a mobile device.

The Streetread mobile app displays the latest news about a stock plus a quote and chart. You can jump to the full stories along with a tie into Google for news.

I think the app would be even stronger if you could set one-click home screen buttons on the iPhone directly to a stock in Streetread. There’s a mobile demo if you want to play with the mobile version before using it on your mobile.

Streetread was founded by Mike Stefanello. Mike is working solo and bootstrapping the project. Here are a few examples of the mobile application:

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Last month we wrote about the "FriendFeed 9" which were the 9 defaults that FriendFeed offers to each new account. FriendFeed founder Paul Buchheit says that only a few people actually see this default list because most new accounts are referred from someone else which eliminates this default list all together. I am not sure I agree with that - when the early adopter blogs posted about the new beta last week, how many new signups did FriendFeed see via direct links - I will bet that it’s most of them. In fact, the number must be great to the default list because default user Scoble noted yesterday that he can tell when FriendFeed is doing well in terms of user growth simply by how many new subs he gets via the default option.

With the launch of the new beta this week, I thought it was a perfect time to take a look and see where the FriendFeed 9 are now and whether they made any changes to the structure. The FriendFeed 9 is now the FriendFeed 24 - that’s the only change that has been made. The list is completely popularity based, not activity/usage based. This type of popularity list means that the 24 selected individuals will always appear on the list.

This is a very poor way to pimp people - it shows that FriendFeed doesn’t give two knishes about their loyal and active users. This is pretty clear because the most active FriendFeed user Mona (her blog) isn’t even on the list.

Here’s my video on the subject:

Robert Scoble says he wants off the list and in Louis Gray’s post today about the new FriendFeed he discusses this popularity list. He notes, "22 of those users were men, 22 were white and there were two Asian (one male, one female)".

All these popularity lists do is keep the top on top (without any quality backing) and never allow for any user/content discovery. I hope that FriendFeed will look into changing their default policy in the near future. I wrote this post and video because I think every startup should consider the lessons learned here for their own projects.

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The web enables us to listen to music, watch tv shows and follow the latest news all without paying a cent. But while things are slowly but surely becoming free, I still believe people are willing to pay for certain value propositions.

Image courtesy of laffy4k

I believe the following 5 things are uniquely profitable in a world of free:

1. Convenience

People are inherently lazy. If you make their lives easier, they will pay you for it.

There are several ways to listen or download music for free, yet people are still paying for songs via iTunes or amazon.com. Why? Because of how easy it is to find and download music on those sites. People value their time more than the 99 cents per download. If you make things convenient and easy people will pay.

2. Quality

Price ensures a more serious and interested clientele. There are many online forums that are free (i.e. Sitepoint, DPreview), but there are also a handful you need to pay for to access (i.e. Webmasterworld, SomethingAwful, metafilter). I believe the reason people are willing to pay for those online communities is because the quality of the content is better. There is a higher signal to noise ratio. This same premise applies to dating sites. People will pay for membership to online dating sites, as opposed to finding dates through any number of free social networks.

3. Additional Functionality

Many websites give consumers just enough services to whet their pallets, and then charge for more functionality or more services, also called the "freemium model." Notable examples include the 37 Signals‘ product offering, Flickr’s Pro Account, and Skype.

4. Customization

Wordpress.com is a great example of this. They provide anyone the ability to have their own personal blog for free however they charge for the ability to customize the CSS or a the blogs domain name for additional fees. Smugmug is another example.

5. Privacy

People still value keeping their private information private. To protect their identity people are willing to pay GoDaddy an extra fee when registering a domain name to ensure the address remains undisclosed.

What do you value enough that you are willing to open your wallet for?

========

Note 1: I would like to delve into this further and have proposed a talk for next year’s SXSW conference on this topic. If this discussion is of interest to you, I welcome any feedback and would appreciate your vote.

========

Kevin Kelly, Wired Magazine’s cofounder, has a really great list of attributes he asserts are "better than free." These qualities people will pay for in a digital age and include:

1. Immediacy
2. Personalization
3. Interpretation
4. Authenticity
5. Accessibility
6. Embodiment
7. Patronage
8. Findability

I asked my twitter followers and received some interestingsuggestions:

* accessibility
* silence
* beauty
* freedom
* peace of mind
* respect
* attention

Any other ideas?

This column was provided by Michael Galpert, co-founder of NY-based Aviary. Aviary is a suite of rich internet applications geared for artists of all genres.

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The Drupal NYC group is having their monthly meetup tonight in NYC. The group is going to discuss setting up Drupal and working with themes. Below is the live feed - should start at about 6:20pm Eastern.

Free TV Show from Ustream

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The Drupal NYC group is having their monthly meetup tonight in NYC. The group is going to discuss setting up Drupal and working with themes. Below is the live feed - should start at about 6:20pm Eastern.

Free TV Show from Ustream

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– Docstoc
– Scribd
– Twitter

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Multimedia search provider blinkx has announced a distribution partnership with Getty Images today. The partnership brings blinkx search technology to the Getty Images database. Apparently it’s easier to search for images on Getty using the blinkx search rather than the search on the Getty Images site.

blinkx will use their ad platform, AdHoc, to serve ads next to the images from the Getty Images library. Revenue will be shared between both companies.

Last month blinkx made an offer to acquire Miva and this year they have formed a variety of partnerships with Revision3 and the BBC.

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Popularity: unranked [?]

The web enables us to listen to music, watch tv shows and follow the latest news all without paying a cent. But while things are slowly but surely becoming free, I still believe people are willing to pay for certain value propositions.

Image courtesy of laffy4k

I believe the following 5 things are uniquely profitable in a world of free:

1. Convenience

People are inherently lazy. If you make their lives easier, they will pay you for it.

There are several ways to listen or download music for free, yet people are still paying for songs via iTunes or amazon.com. Why? Because of how easy it is to find and download music on those sites. People value their time more than the 99 cents per download. If you make things convenient and easy people will pay.

2. Quality

Price ensures a more serious and interested clientele. There are many online forums that are free (i.e. Sitepoint, DPreview), but there are also a handful you need to pay for to access (i.e. Webmasterworld, SomethingAwful, metafilter). I believe the reason people are willing to pay for those online communities is because the quality of the content is better. There is a higher signal to noise ratio. This same premise applies to dating sites. People will pay for membership to online dating sites, as opposed to finding dates through any number of free social networks.

3. Additional Functionality

Many websites give consumers just enough services to whet their pallets, and then charge for more functionality or more services, also called the "freemium model." Notable examples include the 37 Signals‘ product offering, Flickr’s Pro Account, and Skype.

4. Customization

Wordpress.com is a great example of this. They provide anyone the ability to have their own personal blog for free however they charge for the ability to customize the CSS or a the blogs domain name for additional fees. Smugmug is another example.

5. Privacy

People still value keeping their private information private. To protect their identity people are willing to pay GoDaddy an extra fee when registering a domain name to ensure the address remains undisclosed.

What do you value enough that you are willing to open your wallet for?

========

Note 1: I would like to delve into this further and have proposed a talk for next year’s SXSW conference on this topic. If this discussion is of interest to you, I welcome any feedback and would appreciate your vote.

========

Kevin Kelly, Wired Magazine’s cofounder, has a really great list of attributes he asserts are "better than free." These qualities people will pay for in a digital age and include:

1. Immediacy
2. Personalization
3. Interpretation
4. Authenticity
5. Accessibility
6. Embodiment
7. Patronage
8. Findability

I asked my twitter followers and received some interestingsuggestions:

* accessibility
* silence
* beauty
* freedom
* peace of mind
* respect
* attention

Any other ideas?

This column was provided by Michael Galpert, co-founder of NY-based Aviary. Aviary is a suite of rich internet applications geared for artists of all genres.

More CN Coverage:
– Docstoc
– Scribd
– Twitter

More: continued here

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Last month we wrote about the "FriendFeed 9" which were the 9 defaults that FriendFeed offers to each new account. FriendFeed founder Paul Buchheit says that only a few people actually see this default list because most new accounts are referred from someone else which eliminates this default list all together. I am not sure I agree with that - when the early adopter blogs posted about the new beta last week, how many new signups did FriendFeed see via direct links - I will bet that it’s most of them. In fact, the number must be great to the default list because default user Scoble noted yesterday that he can tell when FriendFeed is doing well in terms of user growth simply by how many new subs he gets via the default option.

With the launch of the new beta this week, I thought it was a perfect time to take a look and see where the FriendFeed 9 are now and whether they made any changes to the structure. The FriendFeed 9 is now the FriendFeed 24 - that’s the only change that has been made. The list is completely popularity based, not activity/usage based. This type of popularity list means that the 24 selected individuals will always appear on the list.

This is a very poor way to pimp people - it shows that FriendFeed doesn’t give two knishes about their loyal and active users. This is pretty clear because the most active FriendFeed user Mona (her blog) isn’t even on the list.

Here’s my video on the subject:

Robert Scoble says he wants off the list and in Louis Gray’s post today about the new FriendFeed he discusses this popularity list. He notes, "22 of those users were men, 22 were white and there were two Asian (one male, one female)".

All these popularity lists do is keep the top on top (without any quality backing) and never allow for any user/content discovery. I hope that FriendFeed will look into changing their default policy in the near future. I wrote this post and video because I think every startup should consider the lessons learned here for their own projects.

More: continued here

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Multimedia search provider blinkx has announced a distribution partnership with Getty Images today. The partnership brings blinkx search technology to the Getty Images database. Apparently it’s easier to search for images on Getty using the blinkx search rather than the search on the Getty Images site.

blinkx will use their ad platform, AdHoc, to serve ads next to the images from the Getty Images library. Revenue will be shared between both companies.

Last month blinkx made an offer to acquire Miva and this year they have formed a variety of partnerships with Revision3 and the BBC.

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comScore has released new stats for European Internet usage based on their World Metrix audience measurement service today. The report shows that Russia is leading Europe in Internet audience growth followed by France, Spain and Ireland. Russia’s Internet audience grew 27% from June 2007-June 2008.

As for Internet penetration in Europe, The Netherlands leads with 82% of the total population online. The Netherlands is followed by Denmark, Sweden, Norway, Finland and Switzerland. Based on what I am seeing, Switzerland appears to be pushing out the most new startups out of the top 5 European Internet penetration countries.

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I am not an expert in virtual worlds but on the news tonight there was a segment on Second Life which I thought was worth sharing. The NBC news anchor starts by saying, "The Dark Side of the Web…is Second Life". The segment discusses how parents should keep their teenagers away from Second Life because of all of the sex, porn, drugs, and suicide that occurs in the virtual world. I don’t know about you, but growing up in Brooklyn, most of those things happened on a near-daily basis. The doctor in the segment explains that if teenagers participate in an activity online, they are more likely to want to do it in real life.

Again, while I don’t use Second Life, my guess is that you can find these things anywhere online even outside this "dark side" virtual world.

(apologies for the poor video quality)

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Last year we asked a number of startup entrepreneurs to provide their top tips for success. Today "DebtKid" on the LendingClub blog listed 7 mistakes made when he/she was building out his/her startup. Check out the full blog post for all of the details and apparently later this week will come 7 things done right.

Here’s the 7 things:

1. I Managed People like Michael Scott from “The Office”
2. I Hired My Friends
3. I Budgeted Like Britney Spears: Terribly
4. I Leased A Fancy Office While My Large Basement Went Unused
5. I Raised Money Before I Had Customers
6. I Mixed Business with Pleasure
7. I Assumed Everything Would Go According to Plan

I will get working on the next startup tips ebook. If you would like to participate, send me a note.

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